Optimal Warranty Period when Sale-Price Increases with the Lower Specification Limit

Abstract

The optimal warranty period (OWP) for a product with a single critical variable (like life-time of a car battery) often becomes the manufacturer’s Lower Specification Limit (LSL). In this paper the OWP problem is addressed under the assumption that with the increase of the warranty period the cost incurred on non-conforming items grows but so is also the achievable sale-price. The OWP problem is first solved where the critical quality variable follows an exponential distribution, and then a flowchart is developed for the solution routine of the general case (any distribution). Employing Shore’s inverse normalizing transformation, a distribution-free solution is demonstrated for several numerical cases.